Difference between revisions of "Hyundai Merchant Marine v Trafigura - the Gas Energy"

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The present judgment achieves the result that some argue against.  Notably, the judge considered that a decision in favour of owners in this instance would have been uncommercial, given the greater potential for complex and low value speed and performance disputes to arise.
 
The present judgment achieves the result that some argue against.  Notably, the judge considered that a decision in favour of owners in this instance would have been uncommercial, given the greater potential for complex and low value speed and performance disputes to arise.
  
The present judgment does not stand alone. A London arbitration reported in LMLN achieved the same result.  The circumstances of that arbitration resulted from a failure of the description of permissible weather conditions to be tied into the period during which performance was to be assessed.
+
The present judgment does not stand alone. A London arbitration reported in LMLN(fn.2)achieved the same result.  The circumstances of that arbitration resulted from a failure of the description of permissible weather conditions to be tied into the period during which performance was to be assessed.
  
 
Given that speed and performance provisions are not normally consolidated in one clause or contractual document, and are often subject to negotiation leading up to a clean fixture, the potential for disputes of this nature arising is ever present.
 
Given that speed and performance provisions are not normally consolidated in one clause or contractual document, and are often subject to negotiation leading up to a clean fixture, the potential for disputes of this nature arising is ever present.
Line 96: Line 96:
 
Footnote:
 
Footnote:
 
1. [2004] 1 AC 715, [2003] UKHL 12, per Lord Hoffmann at [112].
 
1. [2004] 1 AC 715, [2003] UKHL 12, per Lord Hoffmann at [112].
 +
2. (2006) 682 LMLN 3

Revision as of 11:57, 30 March 2012

DMC/SandT/12/07

England

Hyundai Merchant Marine Company Limited v Trafigura Beheer BV (The “Gaz Energy”)

English Commercial Court: Flaux J: [2011] EWHC 3108 (Comm): 29 November 2011

TIME CHARTER: SPEED AND PERFORMANCE WARRANTY: PROPER CONSTRUCTION OF CHARTER: WHETHER SPEED AND PERFORMANCE AN “ALL WEATHERS” WARRANTY OR LIMITED TO “MAXIMUM WIND FORCE 4 ON BEAUFORT SCALE”

Stephen Kenny QC (instructed by MFB Solicitors) for HMM, Charterers

David Semark (instructed by Reed Smith LLP) for Trafigura, Owners

Summary

The time charter provisions created an “all weathers” warranty of the vessel’s speed and performance, in that speed and performance was to be assessed throughout the entire period of the charter, and not limited to periods during which wind speed did not exceed Beaufort Scale 4.

Case note by Jim Leighton, BSc (Hons), LLB (Hons), LLM (Maritime Law), Solicitor of England & Wales, Foreign Qualified Lawyer (Practising Foreign Law) in Singapore, Associate at Hill Dickinson LLP and International Contributor to DMC’s CaseNotes:[1]

Background

The vessel, a LNG carrier, was time chartered on an amended Shelltime 3 form with various additional clauses; it also incorporated Gas Form C.

A dispute arose in relation to the speed and performance of the vessel and the proper interpretation of the relevant contractual provisions.

The relevant provisions were clause 24 as amended, additional clause 42 and Gas Form C, which stated:

“Clause 24. Detailed Description and Performance

Owners warrant that at the date of delivery under this charter the vessel shall be of the description set out in Gas Form C attached hereto and signed by them and undertake to use their best endeavours so to maintain the vessel during the period of her service hereunder. Further but otherwise [without] prejudice to the generality of this clause Owners guarantee that the average speed of the vessel will be not less than knots in ballast and knots fully laden, with a maximum bunker consumption of tons diesel oil/ tons fuel oil per day for all purposes excluding cargo heating and tank cleaning. See Additional Clause 42 attached which also overrides any references to over performance herein. [lines 209-216] The aforesaid average speeds shall be calculated in each yearly or other less period, as defined hereinafter by reference to the observed distance from pilot station to pilot station on all sea passages and over the whole of the time the vessel is on hire during such period [lines 217-219]… … In the event of any conflict between the particulars set out in the aforesaid Form and any other provision (including this clause) of this charter, such other provision shall prevail. [lines 241-242]

Clause 42: Speed/Consumption.

Speed about 15 knots average Consumption about 40 mts IFO 380 CST at sea plus about 0.2 mts GO and about 10 mt IFO 380CST at port plus about 0.2 mt GO. Otherwise as per Gas Form C.

Gas Form C

A.5 Speed Guaranteed average speed on a year's period and max wind force 4 in Beaufort scale: Loaded about 14.5 knots, Ballast about 15.5 knots

A.6 Consumption in metric tons per day: At sea In port Main engine/HFO 35 mt - Aux. engine/HFO/GO 6/0.2 mt 9/0.2 mt Boiler/HFO 2.5 mt Inert gas generator/gasoil 285 kg/h”

Other relevant provisions included those for off-hire (clause 21) and a further one following directly after clause 40 of the amended standard form, which stated:

“Additional Clauses Nos. 41-74, Gasform C and revised Paramount Clause, as attached, are deemed to be fully incorporated into this Charter Party.”

Charterers contended that the proper interpretation of the charter was that the speed and performance of the vessel had to be assessed in all weather conditions across the period of the charter.

Owners contended that only periods during which weather conditions did not exceed Beaufort Scale 4 were to be taken into account in assessing speed and performance across the charter period.

Judgment

Applying the relevant principles of construction to the present case and seeking to construe the time charter as a whole and to determine what a reasonable person would have meant by the terms used, the judge concluded that Charterers' construction of the charter was to be preferred.

The starting point was that Additional Clause 42 made no sense unless it was read with clause 24. In effect, it filled the gaps in lines 214-215, as was made clear by the added text after line 216, namely "See Additional Clause 42 attached which also overrides any references to over performance herein". Those concluding words meant that clause 42 overrode references to exceeding performance elsewhere in clause 24. While the parties could have inserted the words in clause 42 into the standard text of clause 24, with some deletions, they evidently found it more convenient to incorporate the speed and consumption figures in clause 42 by reference. The parties therefore did not leave the speed and consumption warranty in the standard form in clause 24 "blank", but instead filled it by incorporating Additional Clause 42 by reference.

Clause 24 then provided in lines 217 to 220: "The aforesaid average speeds [i.e. those incorporated by reference from Clause 42] shall be calculated in each yearly or other less period…on all sea passages and over the whole of the time the vessel is on hire during such period". It was clear, said the judge, from those words that the warranty as to average speed applied in all sea conditions and whatever the weather.

Turning back to Additional Clause 42, the judge considered that the words "Otherwise as per Gas Form C" were capable of more than one construction. They could mean, as Owners contended, that everything in Clauses A5 and A6 of Gas Form C should be read into Additional Clause 42, other than the actual speed and consumption figures, including the words "and max wind force 4 in Beaufort Scale". Equally, they could mean, as Charterers contended, that only those matters set out in Clauses A5 and A6 of Gas Form C which had not been expressly dealt with in Clause 42, namely the consumption of the inert gas generator, "otherwise" applied.

Overall, the judge preferred Charterers’ construction of the words "Otherwise as per Gas Form C" which seemed to be more in accord with the overall commercial purpose of the charter. It also avoided (for reasons to be elaborated below) any internal conflict between the speed and consumption provisions and the “all weathers” warranty in clause 24.

Accordingly, the judge held that, so far as speed and fuel oil/gas oil consumption of the main and auxiliary engines and boiler were concerned, those were as stated in Clause 42 and this overrode any contrary provision in Gas Form C. The "otherwise" referred to those matters set out in Clause A5 of the Gas Form C which had not been expressly dealt with in Clause 42, namely the consumption of the inert gas generator. The judge agreed with Charterers that the use of the word "otherwise" as a matter of language more naturally conveyed something which supplemented clauses 24 and 42, not replaced or contradicted them, which was one of the problems which Owners’ construction faced. Owners’ approach would, instead, elevate clauses A5 and A6 of Gas Form C into clauses which become paramount over clauses 24 and 42, which gave the word "otherwise" a strained and extended meaning it would not bear.

Owners’ construction led to the difficulty of internal inconsistency, with inconsistent speed and consumption figures in Additional Clause 42 and Gas Form C. Owners were unable to provide a satisfactory explanation for the cause and resolution of those inconsistencies.

Therefore, it seemed to the judge much more likely that, so far as speed and consumption was concerned (except for gas oil consumption in the inert gas generator which was "otherwise" dealt with in Gas Form C), the intention was that the wording in Additional Clause 42, which in turn was to be read into clause 24, would prevail over the provisions of Clauses A5 and A6 of Gas Form C.

While it was true that Charterers’ construction rendered the words "and max wind force 4 in Beaufort Scale" in Gas Form C redundant, the presumption against surplusage had little value when construing charterparties and other shipping contracts: e.g. The “Starsin” (fn.1).

Even if Owners' construction of the provisions in Additional Clause 42 and Gas Form C were correct, which the judge had decided was not the case, all that led to was an inevitable conflict between Gas Form C and clause 24 which, by virtue of lines 241-2, was resolved by clause 24, with its “all weathers” warranty, prevailing.

Comment

Some legal practitioners have the view that it would be uncommercial to interpret speed and performance provisions in such a way as to exclude references to maximum permissible weather conditions for the purpose of determining whether or not owners are in breach of speed and performance guarantees.

The resulting difference in approach can mean that a considerable sum of money turns on this issue. This is particularly so for longer term charters, particularly given the substantial rise in the cost of marine fuels over the period of such charters.

The present judgment achieves the result that some argue against. Notably, the judge considered that a decision in favour of owners in this instance would have been uncommercial, given the greater potential for complex and low value speed and performance disputes to arise.

The present judgment does not stand alone. A London arbitration reported in LMLN(fn.2)achieved the same result. The circumstances of that arbitration resulted from a failure of the description of permissible weather conditions to be tied into the period during which performance was to be assessed.

Given that speed and performance provisions are not normally consolidated in one clause or contractual document, and are often subject to negotiation leading up to a clean fixture, the potential for disputes of this nature arising is ever present.

Footnote: 1. [2004] 1 AC 715, [2003] UKHL 12, per Lord Hoffmann at [112]. 2. (2006) 682 LMLN 3